US taxpayers pay $147 mill/year for US cotton farmers & to keep farmers in West-Africa in poverty

Two weeks ago the Fairtrade Foundation UK (FF) published the report “The Great Cotton Stitch-up“. The report criticizes that cotton subsidies of totally $47 billion since 2001 by the four major cotton producers (USA, China, EU, India) have been preventing the four West-African cotton producing countries (Mali, Benin, Burkina Faso, Chad = C-4) from benefiting from their comparatively advantageous cotton production. The problem is that millions of people in West-Africa are dependant on selling cotton.

According to the report, the WTO liberalization policies and the “DOHA Development Round” (and thus the countries promoting such politicies) have not kept up to their promises to stimulate growth, opportunity and wealth through free trade: The West-African cotton farmers “who are more dependent on cotton than on any other commodity for their export revenues, are still suffering from the effects of huge trade subsidies in the US and the EU”. This aid, cotton in Africa is much cheaper than in the US (and it wastes less water, as it is rainfed): While the production of one pound of cotton in Benin costs 0.35$, the average costs of production in the US is 0.80$. But the subsidies, the report shows, help the US farmers sell their cotton to competitive prices. And while US and EU agriculture policies destroy the livelihoods of farmers and their families in rural Africa, EU & US aid programmes support the poor farmers in Africa, the FF criticizes.

Main culprit in this situation is the strong lobbying system in the US, which protects high and stable cotton prices for the US farmers. Studies cited in the report estimate that subsidies reduce cotton prices in West Africa by 5-14%. Similarly, a study by Alston et al. argues that “if US cotton subsidies were eliminated, world cotton prices would increase by 6–14% and cotton producer incomes in West Africa would be 8–20% higher”. Also the case of the EU subsidies is seen as relevant to the cotton farmers in Africa. While the EU pays lower cotton subsidies in total ($353 Million in 2009/10) because only little of cotton worldwide is produced here, they top the US subsidies by far in subsidies paid per pound of cotton ($2.51, compared to $0.14 in the US).

This is far from new, but the report sums up nicely the main arguments – and it was published as a lobbying tool to help influence important decisions that are soon taken at the EU and US level. In addition, the FF argues that reform of the system „depends on communicating the expenses of subsidies to policymakers and the public“. Two current policies are seen as central: The European Commission recently released a draft proposal for the reform of the Common Agricultural Policy, and in 2010 the US Congress “started negotiating a new Farm Bill replacing the current $288bn five-year programme of US agricultural support”.

But are trade distorting subsidies not incoherent to WTO rules? Brazil indeed recently filed a legal complaint against the US within the WTO dispute settlement system, it is reported, and with success. But the report informs us that the US taxpayers now pay $147 million a year to Brazilian cotton growers in the form of a ‚technical assistant fund’. This must seem absurd, not only in the eyes of supporters of free-trade. And why do the C-4 not file a legal complaint? The report argues that it is difficult for poor countries like the C-4 „to ‚challenge’ a big power like the US in a legal case within the WTO: „Powerful economies have many opportunities to put political and economic pressure on small and vulnerable states“ (p. 21). So basically, US and EU farmers get their „Fairtrade premium“, while conventional cotton farmers from Africa do not. The report argues that cotton must be part of the CAP negotiations in 2013, which momentarily they are not. It also argues that the role of subsidies in China and India must be watched in order to improve the situation in Africa.

What is to be done? In the foreword to study the British MP Dr. Vince Cable argues: “The current system of subsidies cannot be right and certainly is not fair. The problem is being addressed through Fairtrade, which is a robust economic and business model. But ultimately, the aim must be to make all trade ‘Fair Trade’. The principles of Fairtrade need to be integrated and reflected in the global trading system, to ensure that poor producers receive a fair price and are enabled to take control of their own development.”

The main conclusions of the report are that there need to be changes in the US and EU agricultural policies and in the WTO architecture. Finally, Fair Trade cotton is presented as a good alternative for African cotton farmers.

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4 Comments on “US taxpayers pay $147 mill/year for US cotton farmers & to keep farmers in West-Africa in poverty”

This is a great article Mark and it seems to be a popular subject in this past week.

But I have to objectively point out that these protectionist subsidy policies are not exclusive to the cotton industry. They apply to most agricultural commodities (such as peanuts, soybeans, rice, wheat, dairy, sugar, etc.) and have been firmly put in place in US after the great depression and in Europe shortly after WW2, in an effort to manage agricultural cost and supplies, and avoid dependency.

So really, this isn’t news, but it is encouraging that these governments are finally starting to recognize that the world that we live has changed, as have the threats.

Thanks for your comment, Ingrid. Sure, the problem is not really new, and the problem of EU/US subsidies applies to very many agricultural commodities. But the cotton case seems particularly striking. I also thought that the report sums up the very complex problems quite nicely, that’s why I tried to sum up the report …

[…] Two weeks ago the Fairtrade Foundation UK (FF) published the report “The Great Cotton Stitch-up“. The report criticizes that cotton subsidies of totally $47 billion since 2001 by the four major cotton producers (USA, China, EU, India) have been preventing the four West-African cotton producing countries (Mali, Benin, Burkina Faso, Chad = C-4) from benefiting from their comparatively advantageous cotton production. The problem is that millions of people in West-Africa are dependant on selling cotton. It gets more interesting at Fellow Ethical Fashion Blog. […]

This is sad. The US government encourages this, but what is most disappointing is the fact that the African governments can not utilize the regional integration to come up with a strategic way of approach the issue at the WTO.